The Bears Dissent Like So Many Americans On So Many Issues, But Resistance Is Futile For The Remainder Of 2023: The Action For December 7, 2023
Division marks the theme of this morning’s Times on issues ranging from policing to Ukraine to the Jewish-American experience and Nikki Haley’s tortuous path to becoming a Trump critic, but curiously play out against a nostalgic ode to a time when division could be healed by the laughter of Norman Lear’s characters. And division marks Wall Street this morning as Friday morning’s employment report takes on outsize significance with the bears trying to keep this market from retesting its summer highs. Lost in the debate over the labor market is the fundamental divide between America and most of the world, where our faster growth and stuttering disinflation reveal a clearer and more sanguine picture than that afflicting much of Europe and Asia, leading to money flows into US equities that make a successful retest all but certain. The S&P 500 likely consolidates today but I expect it to rally tomorrow on the back of a slowing but robust US economy.
The bulls have control for the moment as a few indicators reveal confidence in corporate earnings and the macro environment. These include:
WTI Crude Prices: Oil and by extension gasoline is getting cheaper and that in itself helps consumers and the global economy.
Inflation Expectations: Investors expect lower inflation over the coming years, implying lower interest rates to come, potentially bullish for equities.
Long-Term Treasury Rates: Long rates are falling and that will improve the attractiveness of equities while boosting the housing and auto industries to the benefit of economic growth.
Liquidity Metrics: Measures of money flow across the globe are trending upwards lately, which helps equities.
Based on the action yesterday and overnight there are fewer risks the bulls need to climb over, including:
Aluminum Prices: Aluminium is a critical input for consumer and industrial goods and falling prices signal weak global demand, which is usually bad for equities.
Copper Prices: Copper makes the energy transition happen but is also a barometer of global growth, and falling prices signal growth may be worse than expected.
Geopolitical Issues: Developments around the Middle East are a clear negative for equities.
My current positions reflect my intermediate-term bullish forecast, and include 3M (MMM), Pfizer (PFE), and a large position in UPRO that is partially hedged by an offsetting position in SPXU, which nets out to a long position in equities.